Housing Speculation and Entrepreneurship

Abstract

We document a speculation channel through which house market booms negatively affect entrepreneurship. To address endogeneity concerns, we exploit plausibly exogenous variation in house prices generated by staggered and unintended policy spillovers in China. We find house market speculation triggered by house booms crowds out entrepreneurship. Reduced labor supply and heighted entry costs do not appear to explain our findings. The negative effect exhibits in the OECD countries as well. Our paper complements the well-documented collateral channel by offering novel evidence on a previously under-explored adverse consequence of house market booms – their hindrance to entrepreneurship.

Keywords: Housing speculation; entrepreneurship; house purchase restriction policy

JEL Classification: L26, D84; G28; G51